For all of those who think that we’re on the cusp of economic recovery:
…The agency (FHA) acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.
The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA’s insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006.
And this bonanza of sub-prime (because that’s what it is) underwriting has been happening as the economy gets worse and housing prices drop! The only thing which can save FHA from a collapse is if housing prices start to rise in California, Nevada, Arizona and Florida. As an aside, there’s a house a few miles from mine for sale…2800 sq feet, big lot, very nice pool…a bit run down by the foreclosed former residents, but nothing a bit of spackle and paint can’t cure. Its listed for $138,000.00. My house is 2,200 sq feet on small lot with no pool…I bought it for $396,000.00 in 2005. Think housing prices in Vegas are on the mend?
Its all going to come flying apart, sooner or later – and I suspect sooner than later, but I could be wrong. Main thing: don’t buy the upcoming Obama/MSM (I know, same/same) mantra about recovery we’re about to get over the next few months. Its bogus.
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